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Funico - What Does it Mean?

by Christopher Macdonald, Oct 14th 2011

As you've all heard by now, Niconico and Funimation have launched a joint licensing venture. Niconico asked me to provide a 2-minute video commentary for their presentation and I obliged. Unfortunately 2 minutes isn't enough time to really give all my thoughts on this joint venture, so I've decided to go into more detail here, on Anime News Network. The text of my 2-minute commentary is below, and after it I will expand on several points.

I've been asked to comment on the joint venture between Niconico and Funimation.

First, I would like to congratulate Gen Fukunaga and James Spahn as well as everyone at Funimation and Niconico who made this venture happen.

Along with many of my coworkers at Anime News Network, I firmly believe that online streaming is exceptionally important to the future of the anime industry, and that the industry will be in a lot of trouble if it can't make streaming work to everyone's benefit.

My coworkers and I have been advocating this for many years now, but unfortunately we have also had to admit that streaming isn't reaching it's full potential, and for the most part it sadly isn't profitable for everyone involved.

This joint venture is a step in the right direction. By working together, Funimation and Niconico will be able to focus on and monetize their respective business areas while benefiting from the activities of the other.

This venture should give consumers access to more streaming anime and ultimately result in more titles being released for home video. A win-win-win situation for both companies, Japanese licensors and anime fans.

There's still a lot of work ahead for both Funimation and Niconico and a new challenge for their competitors, but I think this is a good day for anime fans and industry alike.

Thank you.

Let's start off with Niconico, how is this venture good for Niconico? It's very obvious. Funimation is the 900 pound gorilla of the anime licensing world while simulcast-only licensees like Crunchyroll and Niconico are at the opposite end of the spectrum. In most cases, licensors only give titles to Crunchyroll and Niconico when DVD licensees aren't interested in the license. In other words, simulcast-only licensees get to fight over the table scraps. Niconico has now aligned itself with the 900 pound gorilla. Funico is the new 900 pound licensing gorilla. In other words, Niconico will, in most cases, get first pick on whatever simulcasts it wants.

Funimation's benefit from this venture is a little less obvious. Their first, and perhaps biggest benefit is that they no longer have to stream anime. Funimation isn't in the anime streaming business to make a profit. Very few of their anime streams are profitable. Their most important reasons for streaming anime are to promote the titles and to gauge fan interest in those titles. Sometimes Funimation licenses a title for streaming and video (DVD/BD) release, while other times they license it only for streaming and they determine whether or not to license it for video based on how popular it was when it streamed. Now Funimation no longer has to do any of this. They can leave all the work to Niconico, and since Niconico wants to stream as many titles as possible, Funimation will now get the opportunity to evaluate titles they would not otherwise have considered for home video. This venture will probably lead them to license more anime.

Japanese licensors of course benefit because more titles will be picked up for simulcast and home video. This deal means more sales. There are a variety of other benefits a well, but sales are what's important.

This brings us to the most important participants: anime fans. How will you benefit from the Funico deal? Again, it's pretty simple when you take the previous three paragraphs into consideration. This deal will lead to more simulcasts and it will lead to more anime on DVD and Blu-ray. It also means more money flowing back to Japan, resulting in more production budget for future shows. Of course, this is assuming you are happy with Niconico's streaming services. At first, a lot of fans will be annoyed that so many titles are going to Niconico and not one of the other services like Crunchyroll. And with good reason; Crunchyroll offers HD and their encoding is better. Niconico has already told us that they will be offering HD to their subscribers (currently $0.25 to subscribe), and I fully expect that Niconico will fix its video encoding soon (hopefully this season), so with that in mind, yes, this is good for anime fans. The only possible downside is needing to subscribe to two different websites, but even when Niconico inevitably increases their prices, the combined cost of Niconico and Crunchyroll will be about the same as a single reasonable DVD per season.

I don't know yet how this will affect consumers outside of North America though. Niconico does want to be an international site, however Funimation is clearly active only in North America. There is currently alot of behind-the-scenes discussion regarding overseas, English-speaking markets, and the outcome isn't certain yet.

I wouldn't want to be the competition right now though, especially Crunchyroll. With this deal, there's very little reason for any licensor to let a title go to Crunchyroll if Niconico wants it, even if Crunchyroll offers more money. This is a prediction, but I fully expect Funico to tell licensors “We're very unlikely to license a title for video if it streams on Crunchyroll.” By no means will it be impossible for Crunchyroll to license simulcasts, however the number of titles available to them will probably decrease, and the MG (upfront minimum guarantee, or the minimum amount of money per episode they're willing to pay for the right to stream the show) they need to pay for each license may increase again (they were ridiculously high for a while but have now stabilized at “reasonable” levels). Crunchyroll's only attractive option may be to find a home video licensee to align itself with.

Which brings us to the other home video licensees. How does today's announcement affect them? While it certainly isn't as much of a potential issue for them as it is for Crunchyroll, in my estimation, it isn't good news. The Houston group ("Neo-ADV" – Section23, Sentai Filmworks and the Anime Channel) will be least affected. They are already able to operate similarly to Funico, although (ironically) they are less integrated than Funico at some levels. This leaves companies like Viz Media, Bandai Entertainment and Media Blasters disadvantaged when competing with Funimation for licenses (or rather, more disadvantaged than they presently are). My hope is that these companies will develop similar strategic partnerships that will put them on equal footing with Funimation and Niconico, this would be the ideal situation for consumers.

Today's news is very important to the future of the North American anime industry, more important than many people may at first realize. It will be very interesting to see what kind of impact it will have on the landscape. Personally, anything that brings more anime legitimately to our shores is something that makes me happy.

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